The Consumer Staples sector currently accounts for 9.3% of the S&P 500 stock index. These firms are generally less sensitive to economic cycles. The sector generally includes food, beverage, personal product, and tobacco companies.
Valuation data from the Consumer Staples Sector;
|Beta (5 year)||0.66|
The Consumer Staples Select SPDR (XLP) started off strongly in the first half of the year, but faltered lately. The fund is up 5.3% on a year-to-date basis. Sector performance has been quite negative since early February. Low-beta, defensive sectors like consumer staples along with utilities have fallen far behind the S&P 500 in the past 10 months.
Consumer Staples Select SPDR (XLP) vs. S&P 500 Index
Consumer staple stocks are very sensitive to rates and have been left behind in favor of more cyclical, risk-on sectors. However on a long-term time frame, the sector has provided one of the best risk adjusted returns of any of the major eleven sectors. The sector has produced an annual 10.55% return over the previous ten years versus 7.24% for the S&P 500 as of 9/30/2016.
Rising interest rates since the election have had a detrimental effect on the sector as investors have moved towards the financial & industrial sectors. The other major problem for the sector is the strong dollar. As many of the larger firms within the sector like Proctor & Gamble get a large portion of revenue from overseas, a continued strong dollar will crimp earnings when earnings are released in early 2017. Food deflation has also been an issue for many large firms. Many firms in the sector had poor Q3 earnings results including Kimberly-Clark, Diageo, and CVS. However, this offers a dividend investor an opportunity to purchase these premier companies at discounted prices.
Overall, valuations within the sector are higher than historical levels and the market. This is primarily due to investors seeking yield and safety. However, investors should always have some exposure to the sector as it provides a steady return, high dividends, and very low volatility. The beta for sector is very low at 0.66.
Here is the performance and dividend information for the major companies within the sector listed by market cap. My top five selections are bolded.
|Company||Symbol||Market Cap||Yield||YTD Perf.|
|Procter & Gamble Co||PG||225,773||3.17||9.61|
|WalMart Stores Inc||WMT||219,241||2.80||19.64|
|Philip Morris International||PM||140,738||4.52||6.7|
|Altria Group Inc||MO||128,601||3.52||16.27|
|British American Tobacco PLC||BTI||104,228||3.91||5.18|
|The Kraft Heinz Co||KHC||102,689||2.79||19.17|
|Walgreens Boots Alliance||WBA||92,521||1.71||2.41|
|Reynolds American Inc||RAI||78,860||3.18||23.66|
|Reckitt Benckiser Group PLC||RBGPF||58,800||2.45||-8.67|
|General Mills Inc||GIS||37,180||2.96||12.26|
|The Kroger Co||KR||32,572||1.30||-15.92|
|Molson Coors Brewing Co||TAP||21,229||1.66||6.94|
|The Hershey Company||HSY||21,221||2.44||14.7|
|Hormel Foods Corp||HRL||18,167||1.69||-11.71|
|Conagra Brands Inc||CAG||16,521||2.65||24|
|Dr Pepper Snapple Group Inc||DPS||16,488||2.36||-1.43|
|JM Smucker Co||SJM||14,913||2.22||6.15|
Within this group I have found several intriguing candidates for investors looking to invest in this sector, even as many of the consumer staples stocks trade at higher than average historical valuations;
The following stocks are listed on my Top 100 Dividend Stocks list and are considered the best values within the sector based upon price, yield, growth, and safety. My top five selections are listed first;
Diageo plc (NYSE: DEO) is a London-based ADR. It is my top ranked firm within the sector. Priced at $102.56, it offers a 3.55% yield and is trading at just over 17 times projected 2017 earnings. The stock traded at over $130 a share in December 2013. The company is a global alcoholic beverage company that owns a variety of popular beverage including Smirnoff, Guinness, and Captain Morgan. The firm maintains some of the best known brands in their respective categories. In fact, the firm holds 7 of the top 20 premium spirits brands in its arsenal. Diageo has lots of opportunities in emerging markets like China and India. Diageo pays a semi-annual dividend, which varies each year. Although the company stock performance has been poor this year, it offers solid protection as alcoholic beverage companies tend to perform well through all economic periods. DEO ranks 12 on our Top 100 Dividend Stocks list.
General Mills, Inc. (NYSE: GIS) is a Minneapolis-based consumer packaged goods company, known for its cereal brands. The firm’s earnings have surpassed analyst estimates over the past two years, resulting in stronger performance. The only negative at present is its U.S. Retail segment. Revenue fell by 7% in Q1 of 2017. However, the company recently announced its plan to cut jobs and restructure itself in attempt to boost future revenue. General Mills offers a dividend yield of about 3%, compared to the industry average of 1.9%. It trades just above Diageo at 18.4 times next year’s earnings. GIS raised its annual dividend in December by 8%. The annualized dividend rate is $1.92 per share, an increase of 8% over the annual dividend of $1.78 paid in fiscal 2016. GIS ranks 15 on our Top 100 Dividend Stocks list. Overall this stock is one of the premier consumer staples companies in the U.S. with a valuation just above that of the market.
Anheuser Busch Inbev (NYSE: BUD) is our second favorite foreign consumer staples company. It is a Belgium-based ADR. The reason the stock has cracked our top 50 is shares have dropped by nearly 15% this year for U.S. investors. The alcoholic beverage company is best known for its global brands including Budweiser, Corona and Stella. The company released sub-par Q3 earnings recently as weakness in North American volume took its toll, dropping nearly 3%. Global sales were also down nearly 2%. But we like the firm based upon its product depth and merger with SABMiller. The beer conglomerate now maintains a near 30% market share globally. Its small craft brewer category is growing nicely. BUD has a dividend yield of about 3.3%, compared to the average yield of its peers, which is just 1.4%. Recently, BUD announced its plan to sell its Eastern European assets to Asahi Group in a deal worth $7.8 billion. BUD ranks 20 on our Top 100 Dividend Stocks list.
The Coca-Cola Co (NYSE: KO) is a Atlanta-based beverage and snack company. Coca-Cola is a popular choice for dividend investors, as it offers a dividend yield of 3.4% (compared to the industry average of 1.7%). The company also has a long history of boosting its dividend, as it has raised its dividend every year since 1963 (typically by about 8% annually). It qualifies as a Dividend Aristocrat. Over the years, the stock has also gained attention from investors since it has been a favorite of Warren Buffett in his Berkshire Hathaway portfolio. KO’s stock price has stagnated this year. It does trade a premium valuation at just over 20 times earnings for 2017. But we like the fact that James Quincey is coming in as CEO to replace Muhtar Kent after eight years of modest growth. We think that Quincey’s deal making capabilities with spur growth at KO over the next few years. KO ranks 21 on our Top 100 Dividend Stocks list.
Nestlé SA (NSRGY) is another one of our favorites firms, and also foreign based as a Switzerland-based ADR that focuses on health and nutrition products. As the U.S. dollar has been strong for multiple years, ADR stocks has underperformed in general and offer compelling opportunities. Nestlé is a giant offering a portfolio that includes thousands of products and is the leader in the coffee market. Its stock has fallen by 15% since May of 2014. Nestlé operates 20 brands that generate over $1 billion in annual sales, or mega products. It has a massive presence across the world, especially in emerging markets. The firm is also a Dividend Aristocrat, paying out dividends since 1959. Its 3.3% dividend yield combines with a consistent track record of product innovation and stable earnings makes Nestlé a top choice in the consumer staples space. The company recently announced that it could make a chocolate bar taste just as good with much less sugar. This could be a major breakthrough by Nestlé scientists. Nestlé ranks 27 on our Top 100 Dividend Stocks list.
Other intriguing candidates for investing in the consumer staples sector;
Wal-Mart Stores, Inc. (NYSE: WMT) is an Arkansas-based discount retailer. The company has performed well in 2016, but its holiday sales are highly anticipated. Wal-Mart offers a dividend yield of about 2.8%, which is well above the industry average of 1.3%. Since 1975, the company has been consistently raising its dividend every year. WMT ranks 51 on our Top 100 Dividend Stocks list.
Unilever N.V. (NYSE: UN) is a Netherlands-based ADR that offers several segments of products in the consumer goods industry. During its October earnings release, the company missed its consensus, which sent the stock falling. Currently, the stock has a dividend yield of 3.5%, compared to the industry average of 1.9%. UN ranks 54 on our Top Top 100 Dividend Stocks list.
CVS Health Corp (NYSE: CVS) is a Rhode-Island based drug store corporation. The stock is down nearly 20% this year. Towards the end of the year, CVS missed out on a deal with Prime Therapeutics, which resulted a business boost for Walgreen’s (NYSE: WBA). The company currently pays a dividend yield of 2.15%, compared to the industry average of 2.5%. It is likely that the company’s next dividend will be increased. CVS ranks 62 on our Top 100 Dividend Stocks list.
Dr Pepper Snapple Group Inc. (NYSE: DPS) is a Texas-based beverage company. DPS recently announced its plan to acquire antioxidant-infused health conscious beverages brand Bai Beverages in a $1.7 billion deal. This deal will help the company expand its offerings of healthy beverage options. Currently, Dr. Pepper Snapple offers a dividend yield of 2.4%, compared to the industry average of 1.8%. It is likely that investors will see another dividend boost in February. DPS ranks 66 on our Top 100 Dividend Stocks list.
Philip Morris International Inc. (NYSE: PM) is a New York City-based tobacco company. The company is well known for being a great stock for dividend investors, as it currently offers a dividend yield of about 4.6% and has increased its dividend every year since 2008. The dividend yield for the industry as a whole is over 4%. PM ranks 68 on our Top 100 Dividend Stocks list.
PepsiCo, Inc. (NYSE:PEP) is a New York-based beverage company. It was recently announced that Pepsi’s CEO Indra Nooyi will be the newest member of Trump’s Strategic and Policy Forum that will give the president-elect input on industry trends. Pepsi is a long time favorite of dividend investors, as it has consecutively increased its dividend every year since 1973. The stock currently offers a dividend yield of 2.9%, which is well above the industry average of 1.9%. PEP ranks 81 on our Top 100 Dividend Stocks list.
Kroger Co (NYSE: KR) is a Cincinnati-based retail store operator and is the largest supermarket company in the United States. The company could see its profits increase during the Trump Administration, as tax cuts are likely. Kroger currently has a dividend yield of about 1.7%, which is above the 1.3% average yield offered in the grocery store industry. Since 2009, Kroger has increased its dividend every year consecutively, typically by over 10%. KR ranks 84 on our Top 100 Dividend Stocks list.
Walgreens Boots Alliance Inc (NYSE: WBA) is an Illinois-based retail store operator.There has been a lot of chatter this year about the merger between Walgreen’s and its competitor Rite Aid (NYSE: RAD). Although this deal has been delayed, it will likely benefit WBA. Walgreen’s has paid a consistent dividend each year since 1976 and has offered giant increases around 20%. The stock currently pays a dividend yield of 1.75%, which is below the average yield in the drug store industry, which is 2.5%. WBA ranks 87 on our Top 100 Dividend Stocks list.
Procter & Gamble Co (NYSE: PG) is a Cincinnati-based consumer packaged goods healthcare company. The stock has a long history of paying attractive dividends, as it has been boosting its dividend each year since 1957. While the company has been typically increasing its dividend by less than 10% each year, the stock still yields at over 3%. On average, companies in the personal care industry offer a dividend yield of 1.9%. PG ranks 88 on our Top 100 Dividend Stocks list.